Tell me I'm nuts

[bk2030]

I'm looking at buying an existing a FS and converting to EE. The problem is this facility is not that old and is on it's second owner. Neither owner group has been succesful. Traffic count is low by industry standards, however the community is the fastest growing and the location is prime.

My financing is lined up, my business plan helped with getting the banks to compete for my business. There are only 6 ss/iba in the area.

My question is this: Should I pursue a new location and do a ground up, or should I approach the owner and offer a buyout?

bk2030

 

[pitzerwm]

IMO if their location is prime, what are your options to find another prime location and be able to compete successfully?

 

[bk2030]

In my research, I found what the most current buyer paid for the property. No modifications or improvements have been made. The least expensive piece of property that would be big enough is more than the total purchase price paid.

 

[bk2030]

At what point does a facility become unmarketable in its current form?

 

[PaulLovesJamie]

if the location is prime, why did the previous 2 owners fail? I would not spend 1 penny without knowing the precise answer to that question. In case it isnt obvious, based on what youve told us so far I wouldnt buy it.
Thats me though, I see lots of people buying where I wouldnt. (some succeed, some think they succeed, some fail.)

 

[bk2030]

From outward appearance, three things stand out. First it is owner non operated. Second is lack of any signage. You have to speak to an attendant to find out anything. Third, when they are slow (everyday) all of the employees can be seen standing at the end of the tunnel. My wife has commented about how intimidating this can be.

 

[GARY THOMPSON]

selling

I need some advise on selling a wash. We just talked with our accountant and was told that we may have to pay 30k in cap gains.

My question is can you roll that into price and how do you structure it seperate so as to not pay addditional taxe?

 

[JMMUSTANG]

A 1031. Have your accountant or attorney talk to you about it.

 

[Chiefs]

How low is the traffic count? Look you can put in a beautiful facility on a secondary piece of ground and you will have a difficult time being successfu. If its hard to find, or hard to get in and out of and it has a low traffic count, then its easy to see why the first two owners failed with full service.

Owning a car wash is not like owning a restaurant. You've got to have good visibility and access, a very good traffic count and put out a great wash at a great value. No matter how good the deal is, you just cannot overcome a bad location.

 

[pitzerwm]

Gary, you need to understand more about the sale. If you paid $100K and sell it for $130K you have a $30K capital gains, either short term, if less than a year between buy and sell or long term after a year. Now to complicate this sale and a real pain. If you depreciated $30K over the years of ownership, you owe the IRS the tax on the $30K depreciation immediately, that is called recapture. Sometimes when you sell on a contract, you might not even get enough down payment to pay that recapture, and that means you come up with the difference out of your pocket. I would check the deal out with 2 different CPA's because, I have been given the wrong info from CPAs before. There are many ways to structure a deal, that will shuffle the tax due, but rarely will eliminate it. Even a 1031 just postpones the taxes. I legally didn't pay taxes (much tax) for 20 years, but now they are getting it, the only advantage is that more or less its cheaper dollars.

 

[bk2030]

The car count is 17K per day. The location is mid way between major retailers and stop light. However, after loction to stop light there is no development on either side of the road. At this point all land is sold, building just hasn't started. Any avaliable land with the same or higher traffic count begins at 20 per sq ft with 2 acre minimun in size.

I do believe that the location is premature, but at the rate of development and average increase in population growth the site should be good now and great in the 2-3 year future.

 

[Waxman]

But it sounds like it is NOT good now. What can you do about that???

BTW, I used used 3/10 of 1% (multiply daily traffic count by .003) for my cash flow projections and that wound up being the correct # for me to use.

17,000 x .003=51 cpd. Can you make it work with that number???

 

[bk2030]

No. 51 cpd is too low. It is more than they are doing now. On the days I have watched, they are averaging 30-35. If I were to post pictures, this would be understandable. With no signage, customers will not ask. "If you have to ask, you can't afford."

Which is why I asked if I'm nuts to think I can do better. Different format, different marketing, complete different approach. I am trying to keep my hubris in check, and go by the numbers.

 

[pitzerwm]

Another traffic factor, is the speed, the slower the better. Also, where are the cars going, to and from work at 45 isn't good.

BTW, can you financially survive 2-3 years, until things get moving? Right now many people and the media are predicting a recession, what happens if they are right?

 

[bk2030]

35 mph. Both shopping and residential.

As far as the recession, I am conflicted. I have read three car wash forums from back to front, every post and answer. I chose this site to pose the question because of the dialogue that usually takes place.

In the center of the country, trends usually take longer to have an affect and usually correct quicker. Housing in our area is still on the rise. Not as big, but still growing. I have read many posts that argue weather, pricing, etc. The same answer comes through. Run your ship tight, know your market, and get involved in your community.

I guess a better question is at what point is a facility ruined for the current format? How many times have you seen a restaurant or convenience store not make it after several different owners? I know this is sort of a rhetorical question, and I am not asking for a simple yes or no. I appreciate the feedback and am only trying to make the best educated decision I can.

 

[pitzerwm]

I'm a build it and they will come kind of guy, but only if you are not using borrowed money, because your timing might not be right. I have made a lot of money doing things that everyone said was impossible or stupid. AT first, I had to put up 100% of my meager assets, so I didn't have many choices, later, it was with my money, so the deal was less return on my investment than I expected, but no one was going to repo anything. Success comes from taking calculated risk and the odds of making a million are less than winning the lotto. Like most things you only realize that it worked or didn't after the fact. In the end, you get as much advice from people that might have a clue and then its up to you. You are totally right, this is the best forum.

 

[buda]

You have gotten some good advise about this location. It sounds as though the location is not as prime as you may think it is. If traffic count is low then you will have no better time of it than the previous two owners.

In a consumer study done a few years ago among the many questions asked 1500 car wash patrons at car washes all over the US:

"Why did you happen to frequent this car wash?"

The answer: "82% said they happen to drive by, and only 12% said they were motivated by direct advertising."

So much for a location with no traffic count and so much for hoping that advertising will build business in a bad location.

Do not expect that a sign on the main road will direct the traffic into your car wash location that is not on the main road.

There is an exterior car wash in my city on a 4 lane street with a traffic count of at least 70,000 a day at 30mph. It is an inside lot, 110' wide x 250' deep, which is not bad.

However, the owner built a 30' wide detail building on one side of the lot and another 30' wide coffee shop on the other side (in front of the car wash exit), leaving a 40' drive in between.

Even with all this traffic count, the obstruction of the two buildings is like being on a back street. No one knows the wash is there. The first owner was lucky to sell it for what he had in it for about $1.5 million.

The wash does not do 2,000 to 3,000 cars a month, maybe.

The second owner now has the facility up for lease at $6500 a month. At that price a person cannot make it, and will never make it unless they tear down the coffee shop building at least.

Cannot emphasize the need for visibility and high traffic count.

That is not to say a car wash cannot make it, but you have a track record already and two owners have not made it. If you can buy on a trial basis I would do it to see if you can make a difference. If you cannot make it give it back and walk away. If they will sell on that basis.

Bud Abraham

 

[smokun]

Should I pursue a new location and do a ground up, or should I approach the owner and offer a buyout?

Do both... and evaluate at your bottom-line costs.

The soft costs on the existing site are already included. But do the numbers and see where the balance occurs. That partial valuation will help. If new, the ground-up project will take at least six months, and finding one may take many more months. Everything is already in place at the existing site. Okay, you will need to make some changes, but if the location really is "prime", why not take it off the market and redo it properly? That way, you have eliminated your easiest competition... because somebody's going to buy it and operate it in a marketplace that you like.

Were the previous owners absentee or on-site? How about your intentions; on-site or absent?

Why an express exterior? How about any other competition... such as inbay automatics and other self-serves?

Traffic count is one small part of the feasibility equation. Moreover, rooftops are much more important.


-Steve

 

[Ben's Car Wash]

Ok, I sat this out for a while to see where it was going. You question is retorical and very difficult to answer. We can "predict" to a certian degree that it's not 100% the management but a combination of the management, location, signage. format etc. But to ask "can we change the format and do better by adding signage" and get sucess in a down market... I don't know. Definatly NOT AS AN EE with THAT TRAFFIC COUNT! I'd run like the Ginger bread man from the Fox in hind sight of the rising water!

If you asked "can I offer to make a mangement run and change the format to a FLEX SERVICE with EXPRESS DETAILING WHILE CUTTING LABOR TO A BENCHMARK 14% and make it"?.... I'd say Hell yes, but do everything that you mentioned that your already read on "the other forums".

There are 2-3 problems that I see here:

1. The current FS is debt ridded with high labor cost and low volume, poor egress.
2. Wrong traffic count for EE and won't generate the cashflow to cover the debt.
3. The area might not have enough population to withstand another tunnel wash.

I'd present an offer of management to a failing or faultering business model as a bank is in the process of repossesion the current wash (if that is what is happening...or will be soon). That way the burden of the majority of the overhead is NOT ON YOU! You then can "experement" if a FLEX SERVICE will work.

 

[Earl Weiss]

FWIW. Have taken over a failing FS where 2 prior owners failed. Converted to EE with an after care option. people asked why I thought I would succeed. (I had another EE with after care option about 15 minutes away so I knew the demographics.)

My answer was simple. They tried to put a Bloomingdales in a Walmart neighborhood. I was going to put in a Walmart. Done smething similar 2 more times based upon what I thought a location could do. The first year is really tought to overcome all the bad joojoo from the prior operations.

I do not know what the traffic counts were but they are in densely populated areas.

But irrespective of your chances for success you are nuts, or need to be at least a little to be in this business. If you are not nutd, you will be after a while.